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Commerce Exam  >  Commerce Tests  >  Economics Class 12  >  Test: National Income Accounting- Case Based Type Questions - Commerce MCQ

Test: National Income Accounting- Case Based Type Questions - Commerce MCQ


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12 Questions MCQ Test Economics Class 12 - Test: National Income Accounting- Case Based Type Questions

Test: National Income Accounting- Case Based Type Questions for Commerce 2025 is part of Economics Class 12 preparation. The Test: National Income Accounting- Case Based Type Questions questions and answers have been prepared according to the Commerce exam syllabus.The Test: National Income Accounting- Case Based Type Questions MCQs are made for Commerce 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: National Income Accounting- Case Based Type Questions below.
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Test: National Income Accounting- Case Based Type Questions - Question 1
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Which of the following is not an assumption of a two sector model of Circular Flow of Income?

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 1

Circular Income Flow in a Two Sector Economy:

In the diagram, the upper loop illustrates the flow of resources such as land, capital, and entrepreneurial ability from households to firms.

The flow of money occurs from firms to households as factor payments, which include wages, rent, interest, and profits, as indicated by the direction of the arrows.

The lower part of the diagram shows how money flows from households back to firms in the form of consumption expenditure for goods and services produced by the firms.

This creates a continuous circular flow of money or income, highlighting the interdependence of households and firms in the economy.

Answer: C.

Test: National Income Accounting- Case Based Type Questions - Question 2
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Direction: Read the below case and answer the questions that follow:

Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.

The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.

The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.

Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.

Circular flow of income refers to the flow of activities of production, income generation and expenditure involving different ___________ of the economy.

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 2

Solution:

The circular flow of income in a two-sector economy illustrates the continuous movement of resources, money, goods, and services between two main sectors:

  • Households: They provide factors of production such as land, labor, capital, and entrepreneurial ability to firms.
  • Firms (Business firms): They produce goods and services using these factors and pay households factor payments in the form of wages, rent, interest, and profits.

Here's how the circular flow works:

  1. Households supply factors of production to firms.
  2. Firms pay households factor incomes (wages, rent, interest, profits).
  3. Households spend this income on goods and services produced by firms, which is called consumption expenditure.
  4. Firms receive this expenditure as revenue and use it to pay for factors of production, continuing the cycle.

Thus, the circular flow of income refers to the flow of activities involving production, income generation, and expenditure between different sectors of the economy.

Therefore, the correct answer is A. Sector.

Summary:

  • The economy consists of two main sectors in this model: Households and Firms.
  • Circular flow depicts how money and resources move between these sectors.
  • The term "sectors" best fits the blank in the question as it highlights the distinct economic groups involved in the flow.
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Test: National Income Accounting- Case Based Type Questions - Question 3
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Direction: Read the below case and answer the questions that follow:

Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.

The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.

The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.

Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.

Money Flows from __________ to ____________ as factor payments.

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 3
Firms: Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets.

Household: Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets.

Test: National Income Accounting- Case Based Type Questions - Question 4
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Direction: Read the below case and answer the questions that follow:

Circular Income Flow in a Two Sector Economy: In the figure given we can see that upper loop shows the resources such as land, capital and entrepreneurial ability flow from households to firms in the direction shown by the arrow direction.

The money flows from firms to the households as factor payments in the form of wages, rent, interest and profits, shown by the arrow direction.

The lower part of the figure shows the flow of money from households to firms in the form of consumption expenditure done by the households to purchase the goods and services produced by the firms, making the flow of goods and services from firms to households.

Thus, we see that money flows from business firms to households as factor payments and then it flows from households to firms. Thus, there is, in fact, a circular flow of money or income. This is how the economy functions.

Which of the following is not the significance of Circular Flow of Income?
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 4

  • The basic purpose of the circular flow model is to understand how money moves within an economy.

  • It breaks the economy down into two primary players: households and corporations.

  • It separates the markets that these participants operate in as markets for goods and services and the markets for the factors of production.

Test: National Income Accounting- Case Based Type Questions - Question 5
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Direction: Read the below case and answer the questions that follow:

The Centre on Saturday increased the budgetary allocation for the environment ministry from last fiscal by nearly five percent for 2020-21 with no change in the amount allotted to pollution abatement and climate change action plan.

Union Finance Minister, Nirmala Sitharaman, allocated ₹ 3,100 crore for the ministry out of which ₹ 460 crore were allotted to control pollution, which is the same as the money it received in the last budget.

Control of pollution has been conceptualized to provide financial assistance to Pollution Control Boards/Committees and funding to National Clean Air Programme (NCAP).

Similarly, budget for pollution abatement, which was cut by 50 percent last year from 2018-19, remained unchanged at ₹ 10 crore.

The minister also announced that states, which are formulating and implementing plans for ensuring cleaner air in cities above one million population should be encouraged.

Why is the policy implemented?
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 5
It helps to identify how, when, and by whom implementation will be assessed. Monitoring of implementation keeps everyone involved aware of any possible barriers as well as any intended and unintended impacts of the work. After implementation, resources and other supports from stakeholders may decrease.
Test: National Income Accounting- Case Based Type Questions - Question 6
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Direction: Read the below case and answer the questions that follow:

The Centre on Saturday increased the budgetary allocation for the environment ministry from last fiscal by nearly five percent for 2020-21 with no change in the amount allotted to pollution abatement and climate change action plan.

Union Finance Minister, Nirmala Sitharaman, allocated ₹ 3,100 crore for the ministry out of which ₹ 460 crore were allotted to control pollution, which is the same as the money it received in the last budget.

Control of pollution has been conceptualized to provide financial assistance to Pollution Control Boards/Committees and funding to National Clean Air Programme (NCAP).

Similarly, budget for pollution abatement, which was cut by 50 percent last year from 2018-19, remained unchanged at ₹ 10 crore.

The minister also announced that states, which are formulating and implementing plans for ensuring cleaner air in cities above one million population should be encouraged.

___________ means material well-being of the people.

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 6
Welfare means material wellbeing of the people as it is the state of having enough housing, clothing, food, and possessions, etc. to live comfortably.
Test: National Income Accounting- Case Based Type Questions - Question 7
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Direction: Read the below case and answer the questions that follow:

The Centre on Saturday increased the budgetary allocation for the environment ministry from last fiscal by nearly five percent for 2020-21 with no change in the amount allotted to pollution abatement and climate change action plan.

Union Finance Minister, Nirmala Sitharaman, allocated ₹ 3,100 crore for the ministry out of which ₹ 460 crore were allotted to control pollution, which is the same as the money it received in the last budget.

Control of pollution has been conceptualized to provide financial assistance to Pollution Control Boards/Committees and funding to National Clean Air Programme (NCAP).

Similarly, budget for pollution abatement, which was cut by 50 percent last year from 2018-19, remained unchanged at ₹ 10 crore.

The minister also announced that states, which are formulating and implementing plans for ensuring cleaner air in cities above one million population should be encouraged.

What type of externality will the increase in budget allocation create?
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 7
Positive externalities refer to positive impact of an economic activity on the others without involving any price.
Test: National Income Accounting- Case Based Type Questions - Question 8
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Direction: Read the below case and answer the questions that follow:

The Centre on Saturday increased the budgetary allocation for the environment ministry from last fiscal by nearly five percent for 2020-21 with no change in the amount allotted to pollution abatement and climate change action plan.

Union Finance Minister, Nirmala Sitharaman, allocated ₹ 3,100 crore for the ministry out of which ₹ 460 crore were allotted to control pollution, which is the same as the money it received in the last budget.

Control of pollution has been conceptualized to provide financial assistance to Pollution Control Boards/Committees and funding to National Clean Air Programme (NCAP).

Similarly, budget for pollution abatement, which was cut by 50 percent last year from 2018-19, remained unchanged at ₹ 10 crore.

The minister also announced that states, which are formulating and implementing plans for ensuring cleaner air in cities above one million population should be encouraged.

Real GDP and Welfare are ___________ related with each other.
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 8
Real GDP and Welfare are related with each other as rise in the real GDP leads to rise in the welfare.
Test: National Income Accounting- Case Based Type Questions - Question 9
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Direction: Read the below case and answer the questions that follow:

The country’s real gross domestic product (GDP) is likely to expand by 11 percent in the next financial year due to a faster economic recovery and on a low base, says a report. The report by domestic rating agency Brickwork Ratings said economic activities are slowly reaching Pre-COVID levels following the relaxation of the lockdown, except in sectors that remain affected by social distancing norms.

“With progress in developing an effective vaccine for COVID-19 and signals of faster-than-expected recovery in the domestic economy, and also supported by a low base, we expect the real GDP to grow at 11 percent in F/Y 22, from the estimated contraction of 7 percent to 7.5 percent in F/Y 21,” the agency said.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country’s GDP is estimated to contract by a record 7.7 percent during the current financial year.

Assertion (A): Real GDP is the true indicator of the growth of the economy.

Reason (R): Real GDP is nominal GDP adjusted for inflation used to measure the actual growth of production.

Select the correct alternative from the following:

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 9
Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually. Real GDP is nominal GDP adjusted for inflation. Real GDP is used to measure the actual growth of production without any distorting effects from inflation.
Test: National Income Accounting- Case Based Type Questions - Question 10
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Direction: Read the below case and answer the questions that follow:

The country’s real gross domestic product (GDP) is likely to expand by 11 percent in the next financial year due to a faster economic recovery and on a low base, says a report. The report by domestic rating agency Brickwork Ratings said economic activities are slowly reaching Pre-COVID levels following the relaxation of the lockdown, except in sectors that remain affected by social distancing norms.

“With progress in developing an effective vaccine for COVID-19 and signals of faster-than-expected recovery in the domestic economy, and also supported by a low base, we expect the real GDP to grow at 11 percent in F/Y 22, from the estimated contraction of 7 percent to 7.5 percent in F/Y 21,” the agency said.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country’s GDP is estimated to contract by a record 7.7 percent during the current financial year.

Choose one of the correct alternatives given below:

Assertion (A): The country's real gross domestic product is likely to expand.

Reason (R): Some sectors remain affected by social distancing norms.
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 10
The country's real gross domestic product is likely to expand due to a faster economic recovery following the relaxation of the lockdown.
Test: National Income Accounting- Case Based Type Questions - Question 11
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Direction: Read the below case and answer the questions that follow:

The country’s real gross domestic product (GDP) is likely to expand by 11 percent in the next financial year due to a faster economic recovery and on a low base, says a report. The report by domestic rating agency Brickwork Ratings said economic activities are slowly reaching Pre-COVID levels following the relaxation of the lockdown, except in sectors that remain affected by social distancing norms.

“With progress in developing an effective vaccine for COVID-19 and signals of faster-than-expected recovery in the domestic economy, and also supported by a low base, we expect the real GDP to grow at 11 percent in F/Y 22, from the estimated contraction of 7 percent to 7.5 percent in F/Y 21,” the agency said.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country’s GDP is estimated to contract by a record 7.7 percent during the current financial year.

Real GDP is when the goods and services are produced by all producing units in the domestic territory of a country during an accounting year and valued at ___________ prices or constant price.
Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 11
Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year. To calculate Real GDP, we use base year prices and multiply them by current year quantities for all the goods and services produced in an economy.
Test: National Income Accounting- Case Based Type Questions - Question 12
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Direction: Read the below case and answer the questions that follow:

The country’s real gross domestic product (GDP) is likely to expand by 11 percent in the next financial year due to a faster economic recovery and on a low base, says a report. The report by domestic rating agency Brickwork Ratings said economic activities are slowly reaching Pre-COVID levels following the relaxation of the lockdown, except in sectors that remain affected by social distancing norms.

“With progress in developing an effective vaccine for COVID-19 and signals of faster-than-expected recovery in the domestic economy, and also supported by a low base, we expect the real GDP to grow at 11 percent in F/Y 22, from the estimated contraction of 7 percent to 7.5 percent in F/Y 21,” the agency said.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country’s GDP is estimated to contract by a record 7.7 percent during the current financial year.

What will be the growth rate of GDP according to the NSO?

Detailed Solution for Test: National Income Accounting- Case Based Type Questions - Question 12
The NSO data estimated the economy to contract by -7.7% compared to an 11-year low growth of 4.2% in 2019-20. This will be the first contraction in over four decades since the 5.2% fall recorded in 1979-80.
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